Independent natural gas operator,
Southwestern Energy Co.
) reported fourth-quarter 2012 earnings of 44 cents per share,
exceeding the Zacks Consensus Estimate by a penny mainly on
higher production, primarily at its Fayetteville shale
operations. The quarterly results, however, decreased from the
year-earlier profit by a cent. The decline was primarily due to
the drop in natural gas prices.
Full-year 2012 earnings plunged 23.6% year over year to $1.39 per
share from $1.82 in the prior year. However, full-year earnings
beat the Zacks Consensus Estimate by a penny.
Fourth-quarter revenue increased 3.9% to $773.0 million from the
year-ago level of $744.2 million and comfortably surpassed the
Zacks Consensus Estimate of $728.0 million.
Fiscal 2012 revenue was $2,715.0 million, down 8.1% year over
year. The annual revenue came in above the Zacks Consensus
Estimate of $2,665.0 million.
Production and Realized Prices
For full-year 2012, Southwestern's oil and gas production was 565
billion cubic feet equivalent (Bcfe), up 13% from 500 Bcfe in the
During the reported quarter, the company's oil and gas production
grew more than 12% year over year to 149.9 billion cubic feet
equivalent (Bcfe) - almost entirely gas - driven by the
Fayetteville Shale operations. Production from Southwestern's
Fayetteville Shale play increased 7.4% to 125.1 Bcfe from the
The company's average realized gas price, including hedges,
dropped almost 8% to $3.72 per thousand cubic feet (Mcf) from
$4.04 per Mcf in the year-ago period. Oil was sold at $98.17 per
barrel, up 1.7% from the year-earlier level of $96.49 per barrel.
At the end of 2012, oil and gas proved reserves were 4,018
million barrels of oil equivalent compared with 5,893 million
barrels at the end of 2011. About 100% of the Southwestern's
estimated proved reserves were natural gas, of which 80% were
classified as proved developed at year-end 2012. During 2012, the
Corporation added 919.5 Bcfe to proved reserves. These additions
replaced approximately 163% of its production.
Operating income for the Exploration and Production (E&P)
segment improved 0.5% year over year to $196.8 million in the
fourth quarter. The increase was due to an increased output
level, partially offset by lower gas price realization as well as
higher operating costs and expenses related to production growth.
On a per-Mcfe basis, lease operating expenses were 81 cents
versus 84 cents in the prior-year quarter. On the other hand,
general and administrative expense per unit of production
decreased by nearly 14% year over year to 25 cents.
The Midstream Services segment's operating income jumped 14.9% to
$77.7 million in the fourth quarter from $67.6 million in the
year-earlier quarter. The increase was driven by an improvement
in gathering revenues related to the Fayetteville and Marcellus
Capex and Debt
The company's total capital expenditure in 2012 was approximately
$2.1 billion, of which $1.9 billion was invested in E&P
activities and $165 million in the Midstream segment.
As of Dec 31, 2012, long-term debt stood at $1,668.3 million,
representing a debt-to-capitalization ratio of 35.5% (versus
34.3% in the preceding quarter).
As of Feb 20, 2013, Southwestern had approximately 185 Bcf of its
2013 expected gas production hedged at an average floor price of
$5.06 per Mcf. It has hedged approximately 55 Bcf of its 2014
expected gas production at an average floor price of 4.43 per
Southwestern has issued production guidance for 2013 in the range
of 628 Bcfe to 640 Bcfe. The outlook represents an 11% to 13%
increase over the 2012 level.
Southwestern's industry-leading holdings in Northern Arkansas'
Fayetteville Shale play offer some of the highest quality natural
gas discoveries in North America in recent years. Marcellus and
Fayetteville shales also hold ample opportunity for newer natural
We see the company as well positioned for production growth given
its streamlined cost structure, upcoming drilling programs in the
Fayetteville and Marcellus shales, and a wide acreage in its New
Ventures, especially in the Brown Dense play.
However, we remain apprehensive about the weak natural gas
scenario in the U.S. given the continued oversupply and low
demand. This will likely hurt the performance of the company as
well as of other natural gas companies like
Chesapeake Energy Corporation
) in the near term.
Other risk factors include weaker-than-expected commodity prices,
technological failures and the lack of a diversified asset base.
The company holds a Zacks Rank #3 (Hold). However, there are
other stocks in the oil and gas sector -
The Laclede Group, Inc.
Lehigh Gas Partners LP
) - which hold a Zacks Rank #1 (Strong Buy) and are
expected to perform better.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
LACLEDE GRP INC (LG): Free Stock Analysis
LEHIGH GAS PTNR (LGP): Free Stock Analysis
SOUTHWESTRN ENE (SWN): Free Stock Analysis
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